The Wall Street Journal(WSJ) reports that the largest pension fund for municipal employees, the New York City Employees Retirement System, will scrap an investment path that once promised big investment returns. They plan to eliminate its investments in and through hedge funds. Hedge funds charge exorbitant fees for high-risk and opaque investments according to one of the fund trustees.
The New York City Employees Retirement System has invest-able assets of $55B while the Texas Municipal Retirement System (TMRS) has $23.6B.
The following quote is from the Texas Municipal Retirement System Investment Policy Statement, dated December 2015:
"Investments in private equity can offer high returns and diversification, but lack liquidity, have infrequent valuation, are slow to generate initial returns and therefore have significant risk."
Private Equity and Absolute Returns are two of the TMRS investment categories that use hedge funds to implement and manage the investments. These two categories are allocated about $1.6B of the total $23.6B of the TMRS invest-able assets. Hedge funds are involved in other investment categories for TMRS, but, it is difficult to assess their role.
TMRS continues to increase the allocation of assets to Private Equity and Absolute Return at a time when other pension funds are reducing their exposure to these expensive, high risk investment vehicles.
Even though the City has little influence over TMRS, they should advocate for less risk in the investments and eliminating the use of hedge funds due to their high fees and opacity.
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